FCCB redemption woes: Only option to buyback at discount

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FCCB redemption woes: Only option to buyback at discount

Indian companies with convertible foreign loans that are coming up for redemption are stuck on all fronts. Bankers say the only option is for these companies to buy back their loans at the current discounted rates but even cash for this will be tough to get, reports CNBC-TV18's Gopika Gopakumar.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

Indian companies with convertible foreign loans that are coming up for redemption are stuck on all fronts. Bankers say the only option is for these companies to buy back their loans at the current discounted rates but even cash for this will be tough to get, reports CNBC-TV18's Gopika Gopakumar.

The fall in rupee along with the continued decline in stock markets has become a double whammy for many Indian corporate with foreign currency convertible loans. Around 11 billion dollars worth FCCBs are coming up for redemption in the next two years.

With stock prices way below the conversion price, most of these FCCBs have to be redeemed that is repaid. And now with the dollar getting expensive by about 10% in the past eight weeks, the repayment cost is shooting up. Affected companies include the likes of Reliance Communication , Geetanjali Gems, Orchid Chemicals , 3i Infotech bankers say the only option for these companies is to roll over these bonds.

Shikha Sharma, MD and CEO, Axis Bank says, "Corporates are going to have figure out some way of redeeming the debt. They can either redeem the debt either through fresh ECB borrowings or through rupee borrowing depending on how situation pans out. Some of the FCCBs could get rolled over as debt maybe on a different set of terms with the current lenders. Because for them to take that exchange rate hit and refund it with rupee is not going to easy choice. It could be some kind of renewal of FCCBs in some form. Most likely it will be a rollover of debt."

Foreign banks say many promoters prefer to buy back the bonds since they are quoting at huge discounts, but the cash to buy is not easy to get. Bankers are, however, not terribly worried about a possible deterioration in asset quality of companies holding FCCBs.

A Krishna Kumar, MD, SBI says, "It's a possibility. But I don't think we are overly concerned about that at this point in time."

Rating agencies like Crisil have also highlighted the increasing pressure on FCCB repayments in FY12. It believes that corporate debt repayments may continue to put further pressure on the rupee going forward.

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